KNOPMAN MARKS SIE PRACTICE EXAM QUESTIONS
AND VERIFIED ANSWERS
When a broker-dealer acts on an agency basis to help a customer complete trades, the firm normally is
compensated through
A. commissions.
B. mark-ups.
C. asset-based fees.
D. transaction surcharges. - CORRECT ANSWER✅✅✅A. commissions
Acting as an agent, broker-dealers normally charge commissions. Acting as principals, they markup
securities sold from their own inventory
Investment company financial statements are sent to shareholders
A. monthly.
B. quarterly.
C. semiannually.
D. annually. - CORRECT ANSWER✅✅✅C. semiannually
According to the Investment Company Act of 1940, financial statements are required to be sent to
shareholders on a semiannual basis at the minimum.
The credit quality of an exchange-traded note is
A. primarily connected to the strength of the underlying security.
B. based on the credit worthiness of the issuer, typically the investment bank that structures the note.
C. usually very strong, since they are commonly sold by broker-dealers who must meet minimum capital
standards.
,D. always difficult to determine owing to the lack of disclosure required when selling these products to
the public. - CORRECT ANSWER✅✅✅B. based on the credit worthiness of the issuer typically the
investment bank that structures the note
The credit quality of an exchange-traded note is based on the creditworthiness of the issuer, usually an
investment bank that structures the note and sets its terms. Importantly, the credit quality is not based
on the underlying portfolio for which the performance of the investment is based upon.
When opening a margin account, the agreement that customers sign to pledge their securities as
collateral for a loan from the broker-dealer is the
A. margin agreement.
B. hypothecation agreement.
C. re-hypothecation agreement.
D. loan agreement - CORRECT ANSWER✅✅✅B. hypothecation agreement
Customers that open margin accounts must sign a hypothecation agreement to pledge their securities as
collateral for loans from the broker-dealer for margin account purchases. The broker-dealer may then
rehypothecate the securities to the bank, meaning that they are pledged to the bank as collateral for
loans to the broker-dealer for lending to customers.
When comparing rights and warrants, which of the following statements is TRUE?
A. Warrants have shorter expiration periods than rights
B The exercise price of a right is generally below the price of the stock when the right is issued; the
exercise price of the warrant is generally above the price of the stock when it is issued.
C. Rights are often added to bond issues as sweeteners; warrants are offered to existing shareholders to
permit them to maintain their proportionate interest in the company when additional shares are issued
D. Warrants protect shareholders against dilution, rights do not - CORRECT ANSWER✅✅✅B. the
exercise price of a right is generally below the price of the stock when the right is issued; the exercise
price of the warrant is generally above the price of the stock when it is issued
, Rights are short-term instruments that allow a shareholder to purchase the stock below its market price
for a period that usually expires after 4-6 weeks. They are issued to existing shareholders in proportion
to their ownership interest, so that if exercised, they allow the shareholder to maintain their percentage
of ownership, or protect against dilution. Warrants are long term instruments and are often used as
sweeteners in corporate bond issues. They do not protect shareholders from dilution.
A registered representative located in California makes a 7:30pm cold call to a potential customer in
New Jersey. This is
A. permitted as long as the potential customer is not on the do-not-call-list.
B. permitted as long as the registered rep had prior verbal consent from the potential customer.
C. permitted because the call occurred between the hours of 8am and 9pm.
D. prohibited because cold calls can only be made between 8am and 9pm in the potential customer's
time zone. - CORRECT ANSWER✅✅✅D. prohibited because cold calls can only be made between
8am and 9pm in the potential customers time zone
Cold calls can be made between 8am and 9pm in the customer's time zone. Although it is 7:30pm in
California, it is actually 10:30pm in New Jersey because of the difference in time zones. Therefore, this
call is prohibited
Investors whose bonds have been called as interest rates have fallen are now facing
A. credit risk.
B. inflation risk.
C. reinvestment rate risk.
D. capital risk. - CORRECT ANSWER✅✅✅C. reinvestment rate risk
Investors would now be facing reinvestment rate risk, as bonds have been called and it will be difficult to
find another investment offering the same return that was available prior to the bond being called.
Helen opened a Roth IRA last year and wants toknow what part of this year's contributions shecan
deduct. The answer is
AND VERIFIED ANSWERS
When a broker-dealer acts on an agency basis to help a customer complete trades, the firm normally is
compensated through
A. commissions.
B. mark-ups.
C. asset-based fees.
D. transaction surcharges. - CORRECT ANSWER✅✅✅A. commissions
Acting as an agent, broker-dealers normally charge commissions. Acting as principals, they markup
securities sold from their own inventory
Investment company financial statements are sent to shareholders
A. monthly.
B. quarterly.
C. semiannually.
D. annually. - CORRECT ANSWER✅✅✅C. semiannually
According to the Investment Company Act of 1940, financial statements are required to be sent to
shareholders on a semiannual basis at the minimum.
The credit quality of an exchange-traded note is
A. primarily connected to the strength of the underlying security.
B. based on the credit worthiness of the issuer, typically the investment bank that structures the note.
C. usually very strong, since they are commonly sold by broker-dealers who must meet minimum capital
standards.
,D. always difficult to determine owing to the lack of disclosure required when selling these products to
the public. - CORRECT ANSWER✅✅✅B. based on the credit worthiness of the issuer typically the
investment bank that structures the note
The credit quality of an exchange-traded note is based on the creditworthiness of the issuer, usually an
investment bank that structures the note and sets its terms. Importantly, the credit quality is not based
on the underlying portfolio for which the performance of the investment is based upon.
When opening a margin account, the agreement that customers sign to pledge their securities as
collateral for a loan from the broker-dealer is the
A. margin agreement.
B. hypothecation agreement.
C. re-hypothecation agreement.
D. loan agreement - CORRECT ANSWER✅✅✅B. hypothecation agreement
Customers that open margin accounts must sign a hypothecation agreement to pledge their securities as
collateral for loans from the broker-dealer for margin account purchases. The broker-dealer may then
rehypothecate the securities to the bank, meaning that they are pledged to the bank as collateral for
loans to the broker-dealer for lending to customers.
When comparing rights and warrants, which of the following statements is TRUE?
A. Warrants have shorter expiration periods than rights
B The exercise price of a right is generally below the price of the stock when the right is issued; the
exercise price of the warrant is generally above the price of the stock when it is issued.
C. Rights are often added to bond issues as sweeteners; warrants are offered to existing shareholders to
permit them to maintain their proportionate interest in the company when additional shares are issued
D. Warrants protect shareholders against dilution, rights do not - CORRECT ANSWER✅✅✅B. the
exercise price of a right is generally below the price of the stock when the right is issued; the exercise
price of the warrant is generally above the price of the stock when it is issued
, Rights are short-term instruments that allow a shareholder to purchase the stock below its market price
for a period that usually expires after 4-6 weeks. They are issued to existing shareholders in proportion
to their ownership interest, so that if exercised, they allow the shareholder to maintain their percentage
of ownership, or protect against dilution. Warrants are long term instruments and are often used as
sweeteners in corporate bond issues. They do not protect shareholders from dilution.
A registered representative located in California makes a 7:30pm cold call to a potential customer in
New Jersey. This is
A. permitted as long as the potential customer is not on the do-not-call-list.
B. permitted as long as the registered rep had prior verbal consent from the potential customer.
C. permitted because the call occurred between the hours of 8am and 9pm.
D. prohibited because cold calls can only be made between 8am and 9pm in the potential customer's
time zone. - CORRECT ANSWER✅✅✅D. prohibited because cold calls can only be made between
8am and 9pm in the potential customers time zone
Cold calls can be made between 8am and 9pm in the customer's time zone. Although it is 7:30pm in
California, it is actually 10:30pm in New Jersey because of the difference in time zones. Therefore, this
call is prohibited
Investors whose bonds have been called as interest rates have fallen are now facing
A. credit risk.
B. inflation risk.
C. reinvestment rate risk.
D. capital risk. - CORRECT ANSWER✅✅✅C. reinvestment rate risk
Investors would now be facing reinvestment rate risk, as bonds have been called and it will be difficult to
find another investment offering the same return that was available prior to the bond being called.
Helen opened a Roth IRA last year and wants toknow what part of this year's contributions shecan
deduct. The answer is
