Securities Industry Essentials (SIE) Exam New
Version with All Questions from Actual Exam, 100%
Correct Answers and Rationales
Financial Reports - answer : Shareholders have the right to access certain financial information about
the company and to receive audited financial reports, for example a Form 10-K.
Form 10-K - answer : A 10-K must typically be filed with the SEC within 90 days of a company's fiscal
year-end.
Claim to Company Assets - answer : Common stockholders are on the bottom of the priority ladder for
ownership claims and have rights to a company's assets only after bondholders, general creditors, and
preferred shareholders have been paid in full.
Liquidation Priority - answer : Common stockholders are paid last in a liquidation.
Capital Gains - answer : Capital gains are the profit earned from buying stock at one price and selling it
at a higher price, taxed only when realized.
Unrealized Capital Gains - answer : Unrealized capital gains refer to the increase in value of the security
that is not taxed until the investor actually sells it.
Dividend Payment Example - answer : A company could pay a dividend of $0.25 per share.
Pre-Emptive Rights - answer : Pre-emptive rights give shareholders the right to acquire additional
shares, proportionate to their current holdings, at a stated price.
,Rights Offering - answer : A rights offering allows existing shareholders to buy new shares at a specified
price, typically within 30 to 45 days.
Dilution - answer : Dilution refers to the reduction of a shareholder's ownership interest in a company.
Example of Pre-Emptive Rights - answer : If a shareholder owns 5% of a company and the company
issues 100,000 new shares, the shareholder can buy at least 5,000 shares at a specified price.
Rights Trading - answer : If the rights are trading separately, the stock is said to be trading ex-rights and
is worth less than the same stock with rights attached.
Pre-Emptive Rights in US Companies - answer : Pre-emptive rights are rare for US companies and their
existence is determined by state law or corporate charter.
Pop Quiz Example - answer : If Lance owns 1,000 shares of ABC Co. and the company is issuing 100,000
new shares, he must exercise the rights he is awarded to maintain his proportionate ownership.
Warrant - answer : A warrant entitles the holder to buy the issuer's stock at a specified price for a period
of time, generally five years or more, and the exercise price is usually substantially higher than the stock
price at the time of issue.
Exercise Price of Warrant - answer : The exercise price of the warrant is usually substantially higher than
the stock price at the time of issue.
Warrant Exercisability - answer : Warrants become exercisable only if the stock appreciates over the
long term above the exercise price.
Warrants as Sweeteners - answer : Warrants are frequently attached to bonds or preferred stock as a
sweetener, allowing the issuer to pay a lower interest rate or dividend.
Trading of Warrants - answer : Like rights, warrants may also trade separately on the open market.
,Example of Warrant - answer : If Facebook is issuing bonds and attaches a warrant with a strike price of
$250, an investor would want to exercise the warrant if the price of Facebook increases above $250 per
share.
Market Value of Warrant - answer : The market value of a warrant is connected to the value of the
underlying stock.
Rights and Warrants Trading - answer : Rights and warrants may trade as independent securities in the
secondary market.
Warrants Duration - answer : Warrants typically remain outstanding longer than rights.
Intrinsic Value of Warrants - answer : Warrants are generally not issued with intrinsic value, meaning
they are issued with an exercise price above the current market value of the stock.
Dilution Prevention - answer : Unlike pre-emptive rights, warrants do not prevent dilution.
Rights Purpose - answer : Rights allow shareholders to maintain their proportionate ownership of the
company when new shares are issued.
Warrants Purpose - answer : Warrants are issued in connection with another security as a way to make
that security more attractive to investors.
Rights Exercise Price - answer : The exercise price of rights is below the current market value.
Warrants Exercise Price - answer : The exercise price of warrants is above the current market value.
Rights Timeframe - answer : Rights have a short-term timeframe.
Warrants Timeframe - answer : Warrants have a long-term timeframe.
, Blue Chip Stocks - answer : Stocks of large, stable companies with a long history of steady earnings and
dividends, known as blue chip stocks, include companies like General Electric, IBM, Coca-Cola, and
Pfizer.
Blue Chip Stocks Characteristics - answer : Blue chip stocks offer modest growth potential but produce a
steady income stream because they generally pay a consistent dividend.
Investment Classification - answer : Stocks may be classified by their investment characteristics to help
registered representatives determine what stocks to recommend to investors with different investment
objectives.
Proportionate Ownership - answer : Proportionate ownership refers to the ability of shareholders to
maintain their ownership percentage when new shares are issued.
Market Price of Facebook - answer : If Facebook stock is worth $300 per share, an investor would want
to exercise his warrant and buy at the discounted price of $250.
Income Stocks - answer : Income stocks produce income—typically in the form of dividends—for their
investors.
Utility Stocks - answer : Utility stocks are an example of stock that pays steady income.
REITs - answer : REITs also pay regular dividends.
Cyclical Stocks - answer : Cyclical stocks mirror the economy, strengthening when the economy is
growing and declining in value as the economy contracts.
Defensive Stocks - answer : Defensive stocks are resistant to changes in economic cycles.
Basic Need Suppliers - answer : Some companies continue to profit because they supply a basic need,
offer a way to cut costs, or have the lowest prices.
Version with All Questions from Actual Exam, 100%
Correct Answers and Rationales
Financial Reports - answer : Shareholders have the right to access certain financial information about
the company and to receive audited financial reports, for example a Form 10-K.
Form 10-K - answer : A 10-K must typically be filed with the SEC within 90 days of a company's fiscal
year-end.
Claim to Company Assets - answer : Common stockholders are on the bottom of the priority ladder for
ownership claims and have rights to a company's assets only after bondholders, general creditors, and
preferred shareholders have been paid in full.
Liquidation Priority - answer : Common stockholders are paid last in a liquidation.
Capital Gains - answer : Capital gains are the profit earned from buying stock at one price and selling it
at a higher price, taxed only when realized.
Unrealized Capital Gains - answer : Unrealized capital gains refer to the increase in value of the security
that is not taxed until the investor actually sells it.
Dividend Payment Example - answer : A company could pay a dividend of $0.25 per share.
Pre-Emptive Rights - answer : Pre-emptive rights give shareholders the right to acquire additional
shares, proportionate to their current holdings, at a stated price.
,Rights Offering - answer : A rights offering allows existing shareholders to buy new shares at a specified
price, typically within 30 to 45 days.
Dilution - answer : Dilution refers to the reduction of a shareholder's ownership interest in a company.
Example of Pre-Emptive Rights - answer : If a shareholder owns 5% of a company and the company
issues 100,000 new shares, the shareholder can buy at least 5,000 shares at a specified price.
Rights Trading - answer : If the rights are trading separately, the stock is said to be trading ex-rights and
is worth less than the same stock with rights attached.
Pre-Emptive Rights in US Companies - answer : Pre-emptive rights are rare for US companies and their
existence is determined by state law or corporate charter.
Pop Quiz Example - answer : If Lance owns 1,000 shares of ABC Co. and the company is issuing 100,000
new shares, he must exercise the rights he is awarded to maintain his proportionate ownership.
Warrant - answer : A warrant entitles the holder to buy the issuer's stock at a specified price for a period
of time, generally five years or more, and the exercise price is usually substantially higher than the stock
price at the time of issue.
Exercise Price of Warrant - answer : The exercise price of the warrant is usually substantially higher than
the stock price at the time of issue.
Warrant Exercisability - answer : Warrants become exercisable only if the stock appreciates over the
long term above the exercise price.
Warrants as Sweeteners - answer : Warrants are frequently attached to bonds or preferred stock as a
sweetener, allowing the issuer to pay a lower interest rate or dividend.
Trading of Warrants - answer : Like rights, warrants may also trade separately on the open market.
,Example of Warrant - answer : If Facebook is issuing bonds and attaches a warrant with a strike price of
$250, an investor would want to exercise the warrant if the price of Facebook increases above $250 per
share.
Market Value of Warrant - answer : The market value of a warrant is connected to the value of the
underlying stock.
Rights and Warrants Trading - answer : Rights and warrants may trade as independent securities in the
secondary market.
Warrants Duration - answer : Warrants typically remain outstanding longer than rights.
Intrinsic Value of Warrants - answer : Warrants are generally not issued with intrinsic value, meaning
they are issued with an exercise price above the current market value of the stock.
Dilution Prevention - answer : Unlike pre-emptive rights, warrants do not prevent dilution.
Rights Purpose - answer : Rights allow shareholders to maintain their proportionate ownership of the
company when new shares are issued.
Warrants Purpose - answer : Warrants are issued in connection with another security as a way to make
that security more attractive to investors.
Rights Exercise Price - answer : The exercise price of rights is below the current market value.
Warrants Exercise Price - answer : The exercise price of warrants is above the current market value.
Rights Timeframe - answer : Rights have a short-term timeframe.
Warrants Timeframe - answer : Warrants have a long-term timeframe.
, Blue Chip Stocks - answer : Stocks of large, stable companies with a long history of steady earnings and
dividends, known as blue chip stocks, include companies like General Electric, IBM, Coca-Cola, and
Pfizer.
Blue Chip Stocks Characteristics - answer : Blue chip stocks offer modest growth potential but produce a
steady income stream because they generally pay a consistent dividend.
Investment Classification - answer : Stocks may be classified by their investment characteristics to help
registered representatives determine what stocks to recommend to investors with different investment
objectives.
Proportionate Ownership - answer : Proportionate ownership refers to the ability of shareholders to
maintain their ownership percentage when new shares are issued.
Market Price of Facebook - answer : If Facebook stock is worth $300 per share, an investor would want
to exercise his warrant and buy at the discounted price of $250.
Income Stocks - answer : Income stocks produce income—typically in the form of dividends—for their
investors.
Utility Stocks - answer : Utility stocks are an example of stock that pays steady income.
REITs - answer : REITs also pay regular dividends.
Cyclical Stocks - answer : Cyclical stocks mirror the economy, strengthening when the economy is
growing and declining in value as the economy contracts.
Defensive Stocks - answer : Defensive stocks are resistant to changes in economic cycles.
Basic Need Suppliers - answer : Some companies continue to profit because they supply a basic need,
offer a way to cut costs, or have the lowest prices.
