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SIE EXAM 1- 5 : Questions & Answers: Updated A+ Score
Solution
Which of the following statements is TRUE regarding the role of SIPC? (Ans- SIPC covers separate customers. If a broker-dealer declares bankruptcy, which of the following positions is fully covered by SIPC? (Ans- $300,000 in stock, $100,000 in cash If there is a violation of securities laws, which of the following is responsible for taking criminal action? (Ans- The Department of Justice (DOJ) If SIPC does not cover in full a customer's account in a brokerage firm that has gone bankrupt, the investor is a: (Ans- General creditor The Securities Investor Protection Corporation is funded by: (Ans- Assessments on broker-dealers "Blue Sky Laws" were established by: (Ans- Uniform Securities Act
A person has opened an account at a brokerage firm. In which of the following situations is her account protected by SIPC? (Ans- The firm files for bankruptcy and ceases doing business. The Municipal Securities Rulemaking Board (MSRB) does NOT regulate which of the following? (Ans- Municipal issuers The primary purpose of the North American Securities Administrators Association is to: (Ans- Create rules, laws, and exam requirements for states MSRB rules do NOT apply to: (Ans- Issuers For SIPC coverage purposes, which of the following would not represent "separate customer accounts"? (Ans- A cash account and a margin account owned by the same individual
A corporation's shareholders must vote for: (Ans- Stock splits All of the following statements are TRUE regarding ADRs, EXCEPT: (Ans- The increased trading volume and enhanced liquidity in the U.S. markets lead to prices that are virtually identical to those of the underlying stock in the issuer's host country XYZ corporation has 7,000,000 shares of common stock ($1 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price of XYZ is 20. The market capitalization of XYZ common stock is: (Ans- $90,000, $20 market value x 4,500,000 shares outstanding = $90,000,000. The Electro Corporation intends to raise additional funds from its existing shareholders to avoid diluting their interest in the company. The corporation will be engaging in a: (Ans- Rights offering
The certificate which gives a person other than the stockholder the right to vote is referred to as a: (Ans- Proxy An individual is interested in an investment that offers annual income, has the potential of appreciating in value if interest rates decline and, in the event that the issuer fails to make a payment, having the missing amount added to future distributions. For this investor, which of the following securities is the most suitable? (Ans- Cumulative preferred stock Preemptive rights provide which of the following benefits to their holders? (Ans- Their proportionate ownership will not be diluted if additional shares are issued. Which shares of preferred stock may increase the most if the value of the company's common stock appreciates? (Ans- Convertible preferred stock A French company would like to have its stock traded in the U.S. securities markets. This would most likely be accomplished through the issuance of: (Ans- American Depositary Receipts
A customer has an account with a discount broker-dealer that specializes in online trading. If the customer is being charged a commission, the firm is MOST likely acting in which of the following capacities? (Ans- Agent When trading equity securities, the term dark pool is BEST defined as trading: (Ans- Between investors, allowing them to buy and sell securities anonymously without quotes being displayed Which of the following organizations provides clearing services for equity securities? (Ans- The National Securities Clearing Corporation (NSCC) A broker-dealer executes but does not process transactions. If the firm processing the transactions does not know the identity of the customers, this is known as a(n): (Ans- Omnibus account The third market is concerned with: (Ans- Securities listed on an exchange, but traded in the OTC market
An investor who is searching for a quote for a non-unlisted stock may find it on: (Ans- OTCBB Which of the following statements is FALSE regarding a broker-dealer acting as a market maker in a stock? (Ans- It makes money by charging commissions for executing transactions A broker-dealer is clearing its trades through another broker-dealer but is not disclosing specific information regarding its clients. Who is responsible for maintaining the account records? (Ans- The introducing broker-dealer. The department of a brokerage firm that advises a corporation regarding the structure and timing of a potential stock offering and also assists in the underwriting of securities is the: (Ans- Investment banking department Which of the following statements is NOT TRUE concerning a clearing corporation? (Ans- It is responsible for automated book-entry changes in the ownership of securities. The OTC Bulletin Board (OTCBB) is BEST defined as: (Ans- A quotation system for securities that are not listed on either the NYSE or Nasdaq
The investment banking department of a broker-dealer does NOT typically perform which of the following activities? (Ans- Buying and selling securities for both customers and the firm's own account If ABC Brokerage (a broker-dealer) purchases 600 shares of stock from a customer and places the securities into its inventory, it likely acted as a(n): (Ans- Dealer The Investment Advisers Act of 1940 regulates which of the following? (Ans- The fee charged by an accountant for providing advice concerning securities Which of the following organizations does NOT enforce MSRB rules? (Ans- The MSRB Which of the of the following statements is NOT TRUE about SIPC? (Ans- It's an agency of the U.S. government. The primary purpose of a self-regulatory organization (SRO) is to: (Ans- Promote fair and equitable practices among members Which of the following is NOT considered a self-regulatory organization (SRO)? (Ans- The Securities Exchange Commission (SEC)
A method of voting that gives smaller, less substantial stockholders a greater degree of voting power over the larger, more substantial stockholders is: (Ans- Cumulative voting A company in which your client owns stock is about to make a rights offering. The client informs you that he does not plan on subscribing to the offer. You would tell the client that his proportionate ownership interest in the company would: (Ans- Decrease The security with the longest expiration date would normally be a: (Ans- Warrant A customer owns a warrant with a strike price of $50 and the price of the underlying security has increased from $25 to $40. The current intrinsic value of the warrant is: (Ans- Zero An investor would have the right to buy the stock of a corporation for the longest period of time by purchasing a: (Ans- Warrant Common and preferred stock are similar in that: (Ans- The dividends for both must be declared by the board of directors
investor purchasing $1,000,000 face value of bonds at the offering will receive a yearly income of: (Ans- $70, 7% of $1,000,000 = $70, Who derives the MOST benefit from a call provision attached to a bond offering? (Ans- Issuers Which of the following Moody's ratings is the most speculative in the investment-grade category? (Ans- Baa If a bond is quoted at 94 3/4, this is equal to a price of: (Ans- $947. When comparing long-term bonds and short-term bonds, all of the following statements are TRUE, EXCEPT: (Ans- Long-term bonds generally provide greater liquidity than short-term bonds A convertible bond has a conversion price of $50 and is currently selling in the market at $1,100. The conversion ratio is: (Ans- 20 Who derives the MOST benefit from a put provision attached to a bond offering? (Ans- Bondholders
A bond is selling at a discount and yields have remained constant. As the bond gets closer to its maturity, what happens to its price? (Ans- It increases Municipal bond rating organizations are concerned primarily with the risk of: (Ans- Default A customer purchases ten 7% $1,000 par value bonds selling at a discount that have a yield to maturity of 9%. The customer will receive a semiannual interest payment of: (Ans- $ The customer will receive a semiannual interest payment of $350. The bond pays 7% interest based on the $1,000 par value. There are 10 bonds in this example that have a par value of $10,000. Seven percent of $10,000 is $700. Since interest is paid semiannually, the payment would equal $350. During periods of rising interest rates, an investor can expect: (Ans- Long-term bond prices to fall more than short-term bond prices When bond issues have staggered maturity dates, they're referred to as: (Ans- Serial bonds
If market interest rates increase, the prices of outstanding bonds: (Ans- Will decrease A type of bond in which the investor receives one payment is referred to as a: (Ans- Zero-coupon bond The call premium of a bond refers to the amount: (Ans- Over par value that the issuer must pay to exercise the call privilege If a bond offering is issued with a call provision, it's MOST beneficial to: (Ans- An issuer that does not want to make the same interest payment until maturity Which of the following securities will provide an investor with protection against purchasing-power risk? (Ans- TIPS - Treasury Inflation-Protected Securities Of the choices listed, which one is Moody's lowest rating for a municipal note? (Ans- MIG 3 A corporation has raised money to use for expansion of its plant within the next six months. In which of the following securities should the
corporation invest the funds until they are used? (Ans- High-quality commercial paper A corporation that has filed for bankruptcy is to be liquidated. Which of the following securities issued by that corporation has seniority in the liquidation process? (Ans- Mortgage bonds Which of the following is TRUE regarding the tax treatment of municipal bonds? (Ans- Interest is tax-free, but capital gains are taxable. Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond? (Ans- Approval by the state legislature The U.S. government does NOT guarantee the payment of interest and principal for which of the following securities? (Ans- FHLMC (Freddie Mac) securities For corporate bonds, accrued interest is calculated based on: (Ans- 30 days in every month and 360 days in the year A corporate bond that's not backed by any specific asset is referred to as a: (Ans- Debenture
A grant anticipation note is normally paid from: (Ans- Funds received from the federal government A U.S. Treasury bond is selling in the market at 95.18. The dollar value of this bond is: (Ans- $955. U.S. Treasury bonds are quoted in full points and 32nds of a point. A T- bond quote of 95.18 represents 95 18/32. By converting the fraction to a decimal, the quote becomes 95.5625 percent of the par value of $1,000. $1,000 x 95.5625% = $955.62. Which of the following choices has the lowest priority of claims in a bankruptcy? (Ans- Common stock Which of the following statements BEST describes a banker's acceptance (BA)? (Ans- It helps to finance foreign trade between importers and exporters Which of the following statements is NOT TRUE regarding GNMA pass- through certificates? (Ans- Interest is subject to federal tax, but exempt from state tax. The minimum denomination for negotiable certificates of deposit is: (Ans- $100,
Which of the following always trade at a discount? (Ans- Treasury bills The credit rating of a municipality will likely improve with a(n): (Ans- Increase in property taxes Which of the following securities are generally used by importers and exporters to finance foreign trade? (Ans- Banker's acceptances An investor has purchased a Bristol County Public Power System revenue bond. Which of the following statements is TRUE concerning this investment? (Ans- If the power system declares bankruptcy, the bonds will go into default Which of the following choices BEST describes Eurodollars? (Ans- U.S. dollars on deposit in foreign banks Which of the following securities is NOT backed by the credit of the U.S. government? (Ans- Federal National Mortgage Association (FNMA) bonds A double-barreled security is a municipal security that: (Ans- Can be paid from the revenues of a project and is a general obligation of a municipal government
