SIE EXAM QUESTIONS Flashcards
Priority in liquidation
Secured debt, debentures, subordinate debentures, preferred stock, common stock
The normal priority from first to last is secured debt, debentures, subordinate debentures, preferred stock, and common stock.
NAV per share of the mutual fund to increase
a large number of investors making deposits in the fund
When investors deposit money into the fund they buy more shares, so the assets and number of shares increase proportionately and the NAV per share is unchanged. In a similar way, when shareholders redeem shares the assets in the fund go down but the number of shares also decrease proportionally, so the NAV per share is unchanged. In the other responses the assets increase with no proportional increase in the number of shares, so NAV would increase.
Sales charge for Class A shares
-8.5% of the total investment.
Though they are almost always much smaller, sales charges for Class A shares may not exceed 8.5% of the money invested. For example, if an investor spends $1,000 for Class A shares, no more than $85 may be charged as a sales load.
systematic risks—those that would impact all businesses
Market risk & Inflation risk
Systematic risk is the risk that changes in the overall economy will impact securities regardless of the company’s business. Examples of that are inflation (purchasing power) risk, interest-rate risk, and market risk. Business risk and regulatory risk are examples of nonsystematic risk, the kind of risk that might be unique to certain businesses or industries.
Inflation risk is most closely associated with
purchasing power risk
When prices are rising (inflation), purchasing power is reduced. During inflationary periods, a dollar today often doesn’t purchase the quantity of goods and services it purchased yesterday.
bearish on LMN stock and sold it short several months ago and wants to change his strategy on LMN
Buy to close his existing position and open a new long position in the stock
Buying to close will eliminate his existing position, but if he now wants to engage in a bullish strategy on LMN, he would need to buy additional shares.
Not associated with a limited partnership (LP)
freely transferrable interests.
With no secondary market trading, one of the greatest disadvantages of a limited partnership is that an investor’s partnership interest in one is generally not considered to be freely transferrable. The pass through of gains and losses, all tax consequences, and the individual partners being responsible for reporting to the IRS are all characteristics of LPs.
Portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as
-an open-end management investment company.
If managed by the insurance company’s own investment advisor, a separate account must register as an open-end company. If it is managed by a third party, it must register as a unit investment trust.
true of qualified plans but not true of nonqualified plans
- Contributions are tax deductible
- Plan needs IRS approval
Qualified plans require IRS approval, and the contributions are tax deductible. Because nonqualified plans’ contributions are not deductible, they do not require IRS approval.
Registered representative enters a discretionary order for her clients account
the order must be approved by a principal prior to entry.
Each discretionary order must be identified as such at the time it is entered for execution, a principal, officer or a partner of the BROKER-DEALER must approve each order promptly and in writing, but not necessarily before order entry, a record must be kept of all transactions including discretionary ones, and as with all trading activity, it is subject to frequent and systematic review by a designated supervisor or manager.
All the following are leading indicators except
personal income
The money supply, new orders, and stock prices are all leading indicators. These increase in advance to an increase in economic activity. Personal income, however, is a coincident indicator moving along with economic activity.
A company has just conducted a stock offering, by prospectus, through an investment banker. The proceeds of the offering are used to purchase a portfolio of securities. The stock, now in the hands of the public, is freely traded in the secondary market, and the portfolio is managed to generate maximum profit according to a specific investment objective. The company must be
-a closed-end company
A closed-end company, or closed-end management investment company, is much like any other company, just that its source of profit is investments, rather than selling a product or service. Shares of closed-end companies are traded in the secondary markets, while the other choices listed here offer only redeemable securities.
Rising employment due to an increase in demand for goods and services would be associated with periods of
inflation
During inflationary periods, prices are rising due to a rising demand for goods and services. This will have the effect of creating more employment. Conversely, when the economy slows down, employment generally falls and claims for unemployment benefits will rise.
Your customer is long 1 October 75 put at 2. The customer’s maximum gain potential is
7,300
The maximum potential gain for put owners is the option’s strike price (75) less the amount of the premium paid (2)—in this case, 73. Note that this is the same as the contract’s breakeven point. Remember that put owners are bearish and want to see the stock fall in price. A stock’s price can potentially fall to zero; therefore, from the breakeven to zero (73 points) is the most that can be gained.
The Uniform Securities Act (USA) provides a legal framework for the registration of
securities at the state level
The USA provides a legal framework for the state registration of securities. It may be adopted by individual states and adapted to their needs.
Which of the following sets of FINRA rules focuses on fair dealing with the public?
Conduct Rules
The Conduct Rules deal with a broker-dealer’s (and representative’s) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers.
ABC Corporation’s earnings remained steady while its shares outstanding increased by 5%. How does this impact ABC’s earnings per share (EPS)?
EPS has decreased
EPS is calculated by dividing the company’s earnings by the number of outstanding shares. If earnings remain the same while the number of shares increase, then the result (EPS) must decrease.
An investor has asked a mutual fund company for a copy of its Statement of Additional Information (SAI). How long does the fund have to comply with the request?
Three business days from the date of the request
If an investor asks for a copy of a mutual fund’s SAI, the copy must go into the mail no later than the end of the third business day from the date of the request. It must also be supplied free of charge.
An investor holding a 4.5% callable bond has it called away by the issuer when interest rates fall to 3.5%. This is an example of
call risk, which can lead to reinvestment risk.
Call risk (the risk that when interest rates fall, issuers will call in existing callable debt) issues often leads to reinvestment risk for the investor. While receiving one’s principal back sooner than expected, the investor is now left to reinvest at the now lower yield rates.
The risk of being the last to get paid in a corporate liquidation is characteristic of which of the following?
Common stock
Common stock is always last to get paid.
Carrying firms, those that carry customer accounts, must
segregate customer funds and securities from the firms’ funds and securities.
Carrying firms, those that carry customer accounts, must segregate customer funds and securities from that of the firm’s and because carrying customer accounts entails some inherent risk, maintain net capital higher than that which would be required for noncarrying firms.
An investor has purchased bonds having a put feature attached. With this put feature, it is likely that these bonds were issued with
-a lower coupon than similar bonds without the feature
When bonds are issued with features that benefit the bondholder, such as a put feature, the issuer can generally pay a slightly lower coupon rate of interest. This is because the put feature compensates the holder in another way, aside from the coupon rate.
An investor is convinced that CDT stock will soon decline in value for a number of reasons. Which investment strategy will allow the investor to take advantage of the anticipated decline in share value with the smallest cash investment?
Purchase a put option
Purchasing a put is a basic option strategy utilized when one is bearish on a stock. If the stock declines as anticipated, the investor could exercise the right to sell the stock at the strike price and then repurchase it at its lower current market price for a profit. The premium paid to buy the put costs less than the margin required if one were to sell the stock short. Purchasing a call or a call spread are bullish options strategies.
Your client, Mary Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. Which order should she place?
-A sell limit order
Sell limit orders are placed above the current market price and fill at the stated price or higher. Market orders fill at the next available price. Sell stop and sell stop limit orders are not triggered until the market drops to or through the stop price.
