SIE Questions Solved 100% Correct

The SEC is a federal government agency responsible for all of the following, EXCEPT: - ANSWER-Prosecute violators of criminal activity - this is under the Department of Justice The SEC is responsible for: - creating/enforcing penalties for violation of federal securities law - Protect US investors - Require issuers to provide full and fair disclosure regarding their securities to investors Which of the following is the exchange for options trading and the SRO for broker-dealers engaging in the options market? - ANSWER-CBOE - Chicago Board Options Exchange BFDIC is associated with which of the following? - ANSWER-Protecting bank account deposits in the US banks from bankruptcy Following the execution of a trade, custody of client assets and securities are maintained by a(n): - ANSWER-Clearing broker-dealer The main objectives of the Securities Act of 1933 are to: - ANSWER-Provide full and fair disclosures regarding new issues and to prevent misrepresentation and fraud in the sale of securities When an issuer sells securities in a primary offering, the net proceeds are paid to the: - ANSWER-Issuer Which the following underwriting agreements guarantees the issuer of an initial public offering (IPO) that all of the shares will be purchased? - ANSWER-Firm Commitment Which of the following underwriting agreements allows an underwriter to step in, buy remaining shares, and then sell those shares to the public? - ANSWER-Standby The cooling-off period is a minimum of _____ days - ANSWER-20 An investor owned a stock for 18 months before selling it to another investor. This trade placed in the: - ANSWER-Secondary market Which of the following is considered an electronic trading exchange in the First Market? - ANSWER-NASDAQ Who receives the net proceeds from securities that are sold in the secondary market? - ANSWER-Investors ABC is quoted at 15 - 16 what is the ask? - ANSWER-16 Which of the following terms is NOT associated with the secondary market? - ANSWER-Public offering price - Only in the primary market All of the following are contained in a confirmation statement, except: - ANSWER-Profit or loss on the security position traded The primary reason investors buy stock in a corporation is to: - ANSWER-Financially benefit if the share price increases Which of the following has the lowest priority claim on assets if a corporation goes bankrupt? - ANSWER-Common stockholders What is the maximum loss for a corporation's stockholder? - ANSWER-The value of the investment in the company How many shares of stock are in a round lot? - ANSWER-100 Which type of security must all corporations issue? - ANSWER-Common stock All of the following are true regarding treasury stock, EXCEPT: - ANSWER-It has voting rights - Treasury stocks are authorized but not outstanding, does not receive dividends, and have been issued and repurchased by the company If XYZ Corporation issued 10 million shares of common stock and has 1 million in its treasury, how many shares are considered outstanding? - ANSWER-9 million = 10 million - 1 million Outstanding Shares = Issued Shares - Treasury Shares Which of the following is an arbitrary number used for accounting purposes? - ANSWER-Par value Which stock valuation method is determined by supply and demand? - ANSWER-Market value Investors do NOT vote on which of the following? - ANSWER-Amounts of dividend payments What determines the number of votes a stockholder has? - ANSWER-Number of shares owned Which of the following voting methods gives smaller shareholders a better chance of gaining representation on the Board of Directors? - ANSWER-Cumulative voting If an investor is unable to attend a shareholder meeting and vote in person, what other option does the investor have to cast a vote - ANSWER-Submit a vote via proxy in a complete and timely manner If an investor owns 100 shares of XYZ stock XYZ pays a 10% stock dividend, the investor will: - ANSWER-Now own 110 shares If the Quasinyx Corporation declares a dividend on August 8 to stockholders of record on Wednesday, August 23, on what date will the stock trade ex-dividend? - ANSWER-Tuesday, August 22 Morris owns 400 shares of RVL, an exchange traded stock. RVL paid a 20% stock dividend on August 5th. On the day before the ex dividend date, the stock closed at $20/share. What are the tax consequences of this event? - ANSWER-No immediate tax liability, but the cost basis per share will need to be adjusted A stock split is used for all of the following reasons, EXCEPT: - ANSWER-To give the current shareholders more money right away - Usually stock splits are a form of payment to make stock more attractive in secondary market trading and more marketable What is a major advantage of preferred stock over common stock? - ANSWER-Preferred stock dividend have priority over common stock dividends A preferred share of stock was issued with a $100 par value and a fixed dividend rate of 5%. If interest rates increased to 7%, the market value of the 5% preferred stock will: - ANSWER-Decrease Which of the following types of preferred stock pays dividends in arrears? - ANSWER-Cumulative Which type of preferred stock allows the investor the opportunity to increase overall value in their holdings as the company grows? - ANSWER-Convertible A common stock is trading at $100 and recently paid a $1 quarterly dividend. What is the current dividend yield? - ANSWER-4% $1 x 4 = $4 annually Dividend Yield = $4 / $100 = .04 or 4% All of the following are true statements regarding ADRs EXCEPT: - ANSWER-ADRs have voting rights - No voting rights, just foreign trading, dividends, and no preemptive rights Amanda owns 300 shares of ABC Inc. Recently, ABC issued 10 million shares of common stock and gave Amanda the ability to purchase some of the new shares prior to the public offering. This offering is known as: - ANSWER-Preemptive rights Which of the following securities is subject to currency risk? - ANSWER-American Depository Receipts (ADRs) Which of the following option contracts would a bearish investor seek? - ANSWER-Long Put (put buyers) An investor would sell an options contract to: - ANSWER-Generate income from the sale of the contract All the following are characteristics of a bond, EXCEPT: - ANSWER-They represent an ownership position in the issuer - Bonds pay a fixed interest rate, matures in 10-30 years, and are actively traded in the secondary market What is the par value of a bond? - ANSWER-$1,000 What is a bond issuer responsible for paying to investors? - ANSWER-Interest on a timely basis How often does a zero coupon bond pay interest to its holder? - ANSWER-Only at maturity An investor buys a bond from an issuer for $1000. At maturity, interest rates have gone down dramatically. How much will the investor receive from the issuer? - ANSWER-Par value plus the last interest payment due ABC Corporation issued a $1,000 10% coupon bond. At maturity, what is it required to pay out to its bondholders? - ANSWER-$1,050 = $1,000 (par value) + $50 interest payment - Assume interest paid semi-annually The value of a municipal bond will rise if credit rating agencies: - ANSWER-Change their ratings from BBB to A - S&P jump to higher rating A bond has a yield of 6.00% initially but now it is only 5.75%. How many basis points did it drop? - ANSWER-25 = 600 - 575 Which corporate bond has a current yield less than its coupon rate? - ANSWER-Premium Which of the following statement about bonds trading in the secondary market is correct? - ANSWER-Bond prices tend to move in the opposite direction of interest rates What type of relationship exists between bond prices and yields? - ANSWER-Inverse All of the following statements about corporate bonds are true, EXCEPT: - ANSWER-The higher the credit rating of the corporation, the higher the interest rate it will offer (FALSE) TRUE - Corporate bonds are debt instruments issued by corporations - The higher the credit rating of the corporation, the LOWER the interest rate it will offer - Bond interests paid to the investor is subject to ordinary income tax - Failure to pay the semiannual interest means the corporation is in default and can be forced into liquidation by the investors Which of the following is a secured bond? - ANSWER-Equipment trust certificates Debentures are backed by the: - ANSWER-Issuer's full faith and credit and promise to pay Which of the following bonds would pay out the highest interest rate to investors? - ANSWER-Subordinated debentures - Higher default risk so they must have higher interest rates An owner of a convertible bond can: - ANSWER-Exchange the bond for common stock When do issuers typically call bonds? - ANSWER-When interest rates are falling - So they can reissue new bonds with a lower coupon Which of the following has the longest maturity? - ANSWER-T-bonds All of the following debt instruments are backed by the US government, EXCEPt: - ANSWER-T-receipts - Since they're issued by broker-dealers that own treasury securities The federal government has the moral obligation, but not the legal liability to back the issue of: - ANSWER-FNMA securities - FHLMC and SLMA not backed as well Which of the following issues securities that are guaranteed by the full faith and credit of the US government? - ANSWER-GNMA pass-through certificates Which of the following is not a source of income used to back a revenue bond? - ANSWER-Ad valorem taxes - Designed to be self-sufficient so are not funded through taxes, but instead funded through tolls, enterprise activity income, and lease rental payments Which type of municipal bond is backed by two or more sources of repayment? - ANSWER-Double-barreled bond The XYZ Corporation is experiencing a problem with cash flow and it is short of funds to increase its product inventory for a special order. XYZ could alleviate this problem by issuing: - ANSWER-Commercial paper A bankers' acceptance is used for which of the following purposes? - ANSWER-To finance a transaction between companies in two separate countries Which of the following is NOT a money market instrument? - ANSWER-T-bonds - Usually matures in 10-30 years Which of the following debt instrument is considered a money market security? - ANSWER-A 10-year US treasury note 9 months prior to maturity What is one advantage an investment company offers? - ANSWER-Instant diversification To be defined as an Investment Company, a company is required to have all of the following, EXCEPT: - ANSWER-Approval of the SEC - Must have $100,000 in net assets, 100 shareholders, and a clearly defined investment objective Which type of investment company is established or organized under a trust indenture, is operated by a Board of Trustees who supervise the operations, and traditionally invests in a fixed portfolio that may consist of equity securities (stocks) or debt securities (bonds)? - ANSWER-Unit Investment Trust Which of the following only issues common stock to raise capital? - ANSWER-Open-end Management Company All of the following are true regarding the trading of closed-end management company shares, EXCEPT: - ANSWER-Shares are redeemed through the fund A mutual fund must have a minimum of how many investors? - ANSWER-100 Who makes the investment decisions for an investment company? - ANSWER-A professional investment manager or investment adviser Which of the following typically acts as the custodian for a mutual fund? - ANSWER-Trust companies or commercial banks What ratio is used as a method for measuring a mutual fund's annual expenses against the average net assets to show how efficient the fund is operating in comparison others? - ANSWER-Expense Ratio Who is responsible for the preparation of mutual fund retail communication? - ANSWER-Underwriter What is the name of the fee that can be paid by the fund out of its assets to cover distribution expenses and sometimes shareholder service expenses? - ANSWER-12b-1 A mutual fund may offer a reduced sales charges as an incentive to investors who purchase Class ___ Shares. - ANSWER-A A letter of intent can be backdated for up to how many days? - ANSWER-90 Exchanges within the same fund family are also called: - ANSWER-Net transactions When must all customers be provided with the most current mutual fund prospectus? - ANSWER-Prior to or at the time of confirmation Mutual funds are required to furnish all of the following reports, EXCEPT: - ANSWER-Unaudited annual reports to shareholders - Mutual funds must furnish: audited annual reports to SEC and shareholders, and unaudited semi-annual reports to shareholders All of the following are advantages of mutual fund investing, EXCEPT: - ANSWER-Distributions reinvested are always income tax-free A _____ is used with the sale of municipal fund securities. - ANSWER-Program disclosure document Who is the sponsor 529 plans? - ANSWER-States All of the following are characteristics of ETFs, EXCEPT: - ANSWER-They are actively managed and have high management fees - ETFs are listed and trade on an exchange, charge investors commissions on sales, and provide diversification that mirrors a specific index Hedge funds are: - ANSWER-Unregulated, typically unregistered, and not publicly traded All of the following are characteristics of REITs, EXCEPT: - ANSWER-A REIT is set up as a corporation - REITs are trusts, that may be listed or unlisted, invest in property, mortgages, and shares of other REITs, and sell shares of beneficial interest