SIE Mastery Exam 1 Questions With Verified And Updated Solutions.

SIE Mastery Exam 1 Questions With Verified And Updated Solutions. The custodian bank does NOT perform which of the following functions? - answerSelecting the investment manager The best answer is C. The custodian bank always safekeeps the assets and usually acts as both paying agent and transfer agent. Therefore, sending dividends and proxies to shareholders would fall to the custodian. The custodian does not manage the fund, nor does it choose the manager. The manager's contract is voted on annually by the shareholders. Treasury Notes are: - answergovernment obligations with a maximum maturity of 10 years Which of the following projects would be financed by a general obligation bond issue? - answerThe construction of a new junior high school Public schools do not produce revenue and thus are not funded by revenue bond issues. Rather, school bond issues are general obligations of the issuer. A subway line, hydroelectric plant, and sewage treatment plant all charge for their use and can be financed with revenue bond Commercial Paper is a(n): - answerexempt security that has a maximum maturity of 270 day A broker-dealer will sell stock at the: - answerask price Securities dealers quote stocks with a bid and ask. The bid is the price at which the dealer is willing to buy from the customer (therefore, the customer is selling to the dealer at the bid). The ask is the price at which the dealer is willing to sell to the customer (therefore, the customer is buying from the dealer at the ask). Exchange rate risk is a factor to consider when investing in foreign debt issues and the: - answerforeign currency depreciates in value When an investment is made outside the U.S. that is denominated in a foreign currency, the investor assumes exchange rate risk. This is the risk that the foreign currency weakens against the U.S. dollar (which is the same as the U.S. dollar strengthening). For example, assume that an investment is made in $100,000 of bonds denominated in Japanese Yen when the Yen is trading at 100 to the U.S. dollar. Thus, $100,000 x 100 Yen per U.S. dollar = 1,000,000 Yen being spent. Also assume that each bond costs 10,000 Yen, so 100 bonds are purchased at $100 each. Now assume that the bonds do not move in price, but the Yen weakens to 200 Yen to the U.S. dollar (each U.S. dollar now "buys" 200 Yen instead of 100 Yen). This means that 100 bonds are still priced at 10,000 Yen each in Japan. However, because each U.S. dollar is worth 200 Yen, the bonds are now worth 10,000 Yen / 200 Yen per U.S. dollar = $50 each. Thus, the bonds are now worth 1/2 of what was paid for them, solely due to the movement in currency exchange rates. An investor purchases a $1,000 convertible bond at 80. The bond is convertible into common at $20 per share. The current market price of the common is $10 per share. If the investor were to convert, he or she would receive how many shares of common stock? - answer50 Conversion is based on the par value of the bond, which is $1,000. The investor can convert at $20 per share, so upon conversion, the investor would receive $1,000 par / $20 conversion price = 50 shares. The purchase price of each of the following can be negotiated EXCEPT: - answerSavings bond Savings bonds are non-negotiable - they do not trade. Commercial paper, certificates of deposit, and banker's acceptances are all money market instruments that are negotiable (i.e., trade in the market). Which industry is most susceptible to swings in market interest rates? - answerUtilities are capital intensive - building electric generating plants is expensive! To obtain long term funds, utilities can issue either stock or bonds. Because their revenue stream is stable, utilities can issue large amounts of bonds at favorable interest rates without negatively affecting their credit rating. A corporation has issued 10%, $1,000 par convertible debentures, convertible at $31.25. The common stock is currently trading at $35. If the bond and the common are trading at parity, a customer purchasing 5M of the bonds will pay: - answer5600 The bonds are convertible at $31.25, based on $1,000 par value. Therefore each bond converts into 32 shares ($1,000 par / $31.25 conversion price). If the common is trading at $35, the bond must be trading at 32 times this to be at parity. $35 x 32 = $1,120 parity price of one bond. The parity price of "5M" ($5,000 face amount, "M" is Latin for $1,000) is $1,120 x 5 = $5,600. How are Treasury Notes quoted? - answerWhole and Fractional