FINRA SIE Exam questions and answers already graded A

If interest Rates fall the issuer will most likely call which bonds first? High Dividend Rate preferred issues trading at a premium What are some actions by a corporation will affect an individuals common shareholder's equity 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 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 What traits do preferred stock and bonds have in common? How are they different? 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? 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 $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? 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? 10,000 Shares with $560.,000 Explanation 400 BP x $1.4 = 560 $560,000 / 560 BP/share = 10,000 Shares of XXYZ Preferred Stock market valuation is based primarily on what? Performance of stock? Inflation? Interest rates? 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? Exerciserable, Negotiable (can be traded), Giftable Dividends can be paid in the form of? 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? 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.. Debenture 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 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 All of the following are sources of income that can be used to service debt on municipal revenue bonds Except? 1) Toll Fees 2) Park Fees 3) Capitalized interest 4) Sales Tax Capitalized interest (property tax) is not used in revenue bonds, it is only used in General Obligation Bonds A corporation issued a 7% AA sinking fund debenture at par. Three years later, similar issues are being issues at 8%. Which of the following is true about the outstanding 7% issue? How does the current yield relate to the nominal yield The current yield will be higher than the nominal yield. The nominal yield (stated yield) will be 7% The market price of the yield will drop when the new issues are at a higher yield. Current yield = annual interest $/ current market price market price = .07 / .08 = 875 Current yield = 70 / 875 Current yield = .08 Current yield > Nominal How would you quote a US Government bond with a dollar price of $1012.50? 101-8 US GOVT bonds are quoted on a percentage of par at 1/32nds 101 + 8/32 = 101.25 then multiply by 10x to get to par $1012.50 A corporation has issued 9%, $1,000 par convertible debenture which convert at $50. The common stock is currently trading at $60. If the bond and the common stock are trading at parity a customer purchasing 5M of the bonds will pay: Answer $6,000. The bonds are convertible at $50, based on a $1,000 par value therefore each bond convert into 20 shares at $50. If the common stock is trading at $60 the bond must be trading at $60 x 20 = $1,200 Since they are buying 5M that means that are paying 5 x $1,200 = $6,000 Issuance of which of the following municipal issues are NOT subject to statutory debt limits Special tax bonds Industrial Revenue Bonds Moral Obligation bonds COPS (General Obligation are subject to debt limits) A corporation has issued bonds at 8%. Three years later similar issues are being offered in the primary market at 7% which of the following statements will be true about the current yield and the nominal yield? The current yield will be lower than the nominal yield. The dollar price of the bond will be at a premium. Nominal (stated) = .08 Market price of bond = .08/.07 = 1,143 Current Yield = 80 / 1143 = .06999 New issues of Government debt are issued in what form? Fully registered Fully registered to principal Book entry Mega super registered to a bro Book entry All new corporate bonds are issued in what form? Fully registered Book entry Mega man entry Registered to principal Book entry zero coupon bond a bond that makes no coupon payments and is thus initially priced at a deep discount call premium The call premium is an amount over the face value of the security and is paid in the event that the security is redeemed before the scheduled maturity date. Put another way, the call premium is the difference between the call price of the bond and its stated par value. Who rates commercial paper? Moody's, Standard and Poor's, Fitch NOT BEST's BEST's DOESNT DO A THING Treasury notes and Bonds are registered in? A) Bearer securities B) Registered to interest only C) Registered to principal only D) Fully registered in book entry form D Government and Corporate are registered in book entry form Which statements are true regarding the relationship interest rates and preferred stock? When interest rates rise preferred stock prices will fall When interest rates fall the preferred stock prices will rise. They are inverse! Similar to Bonds At the time of "when and as if issued" trade the: I Amount of accrued interest due to the under writer is known II Amount of accrued interest due to the underwriters is not known III Settlement date is known IV Settlement date is not known II and IV Interest due is now known Settlement date is not known Which of the following are defined as investment companies under the Investment Company Act of 1940 1) Management Company 2) Unit Investment Trust 3) Face Amount Certificate Company ( Real Estate Investment Trust are not considered under this act) Constitutional Debt Limits are imposed on the issuance of? General Obligation bonds (Moral obligation bonds are not subject to debt limits they are issued in desperation) Which of the following pay dividends? I Warrants II ADR's III Preferred Stocks IV Real Estate Investment Trust Shares II , III , IV Warrants are the only ones that do not pay dividends