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Incorrect questions Flashcards

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SIE Exam flashcards
1
Q

What is a collateralized time draft?

A

time draft guaranteed by a bank
ex: bankers acceptances (used to facilitate foreign trade)

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2
Q

When does the 5% markup policy apply?

A

non-exempt securities, securities quoted on NASDAQ
OTC trades of outstanding, non-exempt securities with the public
NOT new issues, municipal securities, or securities issued with a prospectus

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3
Q

How to calculate market capitalization

A

outstanding shares x market value
outstanding shares=issued - treasury

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4
Q

What is settlement date (regular way)?

A

when shares must be delivered
Corporate, Municipal, U.S. Gov: T+1
Cash: T
Seller’s option: negotiated, S>T+2
When issued: once security becomes available for delivery

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5
Q

What securities are backed by US government credit, and how are they taxed?

A

US Treasury: T-Bills, T-Notes, T-Bonds, Treasury inflation protected (TIPS), STRIPS (separate trading zero coupon)
Government National Mortgage Association (GNMA)
-interest/gains subject to federal tax, but not state
-short-term cap gains (<1yr) ordinary income tax rates
-long-term cap gains (>1yr) lower long-term gain rates

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6
Q

What are the three entities involved in US mortgage backed securities, and their key differences?

A

GNMA: GOV SPONSORED, no credit risk, provide liquidity in housing market, guarantees timely payments, Federal income tax on interest
FNMA: FED SPONSORED, little credit risk, government sponsored enterprise (GSE), backed by conventional loans, expand secondary mortgage market, larger commercial banks, Fed, state, local income tax on interest
FHLMC: FED SPONSORED, little credit risk, GSE, backed by conventional loans, smaller banks and savings institutions, Fed, state, local income tax on interest

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7
Q

What is a no-load fund, and how is its price determined?

A

mutual fund with no sales charge or commissions, purchase price computed at the end of each business day, determined by NAV, 12b-1 fees cannot be >25 basis points

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8
Q

What are dividend dates?

A

Declaration: board announces dividend amount, record date, and payment date
Ex-Dividend/Record: first day stock trades without value of the dividend payment, must purchase before in order to receive the dividend, if bought on or after, seller receives the dividend, list of shareholders reviewed, determine who is eligible
Payment: dividend is actually paid out

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9
Q

What is a Unit Investment Trust?

A

diversified, fixed portfolio, no IA, supervised not managed, no management fee, specific termination date

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10
Q

How is US Treasury interest taxed?

A

subject to Federal income tax, exempt from State
(government thing–> government tax)

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11
Q

When is someone subject to statutory disqualification?

A

CONVICTED of felony or misdemeanor involving financial crimes for past 10 YEARS
(accusation does not count)
Violating securities laws and expelled/suspended from SRO
Barred by regulatory authority
Failing to disclose info
Findings by regulatory of unethical conduct

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12
Q

What does Section 1035 apply to?

A

exchanges of insurance policies and annuities, allows exchange without a taxable event

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13
Q

Can a spouse/dependents of a BD employee open an outside brokerage account?

A

Yes, but written consent from employing firm must be obtained

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14
Q

How is a custodial account registered with a BD?

A

titled in custodian’s name, minor’s social security number

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15
Q

What is a money market fund?

A

short term mutual fund with high quality, low risk debt securities (like T-Bills)
safe place to park money while earning modest return
liquid, shares can usually be redeemed at any time

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16
Q

What are the potential profit and loss outcomes of writing a covered call?

A

limited profit, limited loss
loss is limited to stock purchase price minus the premium received for selling the option
profit is limited to the strike price-purchase price+premium

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17
Q

What is a REIT?

A

Real estate investment trust (equity, mortgage, and hybrid)
trade on exchange (value decreases if interest rates increase)
offer liquidity high dividend yield
REITs must distribute 90% of taxable income as dividends, avoids corporate income taxes

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18
Q

Can a RR open an account with another member firm?

A

Yes, but must acquire written approval from employing firm, and provide written notice of affiliation with their employer to the firm at which the account will be opened

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19
Q

How does a BD regulate social media use by an RR?

A

education regarding social media use and include procedures in firm’s WSP

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20
Q

How to find the breakeven point of a call and a put?

A

call: add premium to strike price (CALL UP)
put: subtract premium from strike price (PUT DOWN)
you do not need to know if they are short or long, doesn’t matter!

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21
Q

What is the formula for current yield? (given monthly dividend and current market price)

A

(monthly dividend x 12) / current market price

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22
Q

What is the maximum profit and loss of a short call option?

A

profit: premium
loss: unlimited

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23
Q

What is a stop-limit order?

A

at the price specified, order will be triggered. If trades are higher than trigger price, sell order will be executed. If lower, buy order will be executed

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24
Q

What kinds of funds would have the most price volatility?

A

Equity funds
In general, bond funds are less volatile

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25
Q

What can the FRB do to tighten money supply?

A

sell gov securities in the open market
increase discount rate
increase federal funds rate
increase reserve requirements
use repo to cause deposits and reserves to increase)

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26
Q

What are the prime rate, discount rate, reserve requirement, and federal funds rate

A

PR: interest rate banks charge best institutional customers
DR: fed charges banks
RR:amount of money bank must maintain based on % of deposits
FFR: interest rate at which banks lend money overnight (set using repos and reverse repos)

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27
Q

What are the tax rules for a 529 plan?

A

non-deductible at federal level, tax-free if plan is used for qualified education expenses
deductible at state level if using home state plan

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28
Q

What is an Industrial Development Bond?

A

municipal bond primarily backed by the leasing corporation to help private companies finance new facilities

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29
Q

What is a stock dividend?

A

instead of paying a cash dividend, a company can provide dividends in the form of more shares of stock

30
Q

On what calendar is accrued interest is calculated for corporate/muni bonds, and treasury notes/bonds?

A

corp/muni: 30 days/mo, 360 days/yr
treasury: actual days/mo and 365days/year

31
Q

What are the rules for a firm holding mail for a client?

A

RR can hold mail for 3 months, or >3mo with a valid reason
firm must have procedures the ensure there is no tampering

32
Q

Who distributes interest payments in a DPP?

A

syndicator/underwriter

33
Q

What are the differences between a closed-end fund and an open-end fund?

A

Closed-end: exchange-traded (price determined by supply and demand)
purchased with commissions/sold minus a commission
one-time issuance of fixed number of shares, can be traded on exchange in secondary market
better for** long term **investment
regular dividends/distributions

Open-end: trade for NAV (calculated end of day, every day) plus sales charge (POP) directly through fund company (not exchanges)
issue and redeem shares at any time (at NAV)
inflows and outflows of shares
better for short term
periodic distributions based on income earned and gains
can have 12b-1 fees
continually issues new shares

34
Q

What is the formula for sales charge?

A

(POP-NAV)/POP

35
Q

When must a BD send out a balance sheet?

A

every 6 months or at request

36
Q

What securities may be purchased on a margin?

A

Corporate bonds, common and preferred stocks, ETFs
OTC equities (unless approved by FRB), equity IPOs, and open-end shares cannot. Open-end can be used as collateral towards future purchases

37
Q

What happens when an RR terminates employment with a member firm?

A

Form U5 filed within 30 days
FINRA jurisdiction remains for 2 years after resignation
CE must be maintained

38
Q

What are official statements, and do they need to be approved?

A

like the prospectus, but for a municipal offering. They do NOT need to be approved, and they are not required. If created, they must be distributed to purchasers

39
Q

What must be reported on U4?

A

misdemeanor charge for stolen property or financial crimes, even if dismissed
anything of felony charge at ANY TIME, arbitration results, bankruptcy

40
Q

What are the differences between ETNs and ETFs?

A

Exchange-Traded Note
unsecured debt security that tracks performance of index, commodity, or asset
credit risk, issued by financial institutions/banks (default risk)
long term, matures 10-30 years
no periodic interest/dividends

ETF
basket of assets, own shares of the fund, no credit risk
market risk
no maturity date

41
Q

What is the max penalty for insider trading violations?

A

$5,000,000 fine and/or 20 years in prison

42
Q

What is a depository facility?

A

DTC, holds securities in book-entry form, allowing BDs to buy and sell securities efficiently, NOT a clearing facility

43
Q

What is the Investment Co Act of 1940?

A

recognizes 3 types of investment companies
-Face amount certificate
-Unit investment Trusts
-Management Companies
These companies must register with the SEC
Must disclose holdings, status, operations
Part of BOD must be independent

44
Q

What are similarities and differences between Roth IRAs and Roth 401ks?

A

Similarities
-tax treatment: after tax, no tax reduction when contributing, qualified withdrawals are tax free
-earnings grow tax free
-no age limit for contributions as long as income is earned
Differences
-different limits (7k for ira)
-income limit for IRA
-IRAs have broad investment options
-IRA does not have RMDs
Withdrawals can be made to pay for higher education of close family, pay for first-time home-buying, pay for new baby

45
Q

What does a rise in CPI indicate?

A

inflation, interest rates rise, bond prices fall, purchasing power is decreasing, price of goods increase

46
Q

What is the difference between a special assessment bond and an industrial development bond?

A

Special Assessment:
-finance projects that benefit group of property owners
-repayment comes from special assessments, usually added onto property taxes
-ex sewers, sidewalks
IDBs (IRBs):
-issued by muni or gov entity to finance buildings/equipment for private businesses
-backed by corporation that uses the facility built by the IDB (credit rating too)
-repayment comes from revenues, tax-exempt

47
Q

What is Regulation T

A

margin accounts, purchases must be paid for promptly, S+2
BD can cancel transaction by selling out, then place a 90 day freeze on the account where all purchases must be paid for in advance

48
Q

What are fixed annuities and variable annuities backed by?

A

fixed: insurance company’s general account
variable: separate account

49
Q

What is the difference between a competitive bidding process and a negotiated sale?

A

competitive: multiple bids set by underwriters, lowest interest rate wins
negotiated: company works with underwriter to set issue price/interest

50
Q

What is GDP?

A

value of all goods and services produced by a population within a time period

51
Q

What are terms associated with variable annuities?

A

surrender charge, death benefit, sales charge/load
NOT commission (associated with buying and selling individual securities)

52
Q

What is the price a mutual fund investor receives when redeeming shares?

A

next computed bid price on the day the shares are redeemed

53
Q

What is YTM? How do you know if it is trading at a premium or discount?

A

YTM is equal to basis, if basis/YTM is less than coupon, bond is trading at a premium. If YTM is greater than coupon, bond is trading at a discount. if basis decreases, YTM decreases.

54
Q

What entities typically administer a 529 plan?

A

state, but often administered by a third party vendor

55
Q

What order are yields on the teeter totter?

A

nominal–> current–> YTM–> YTC
flat=$1000 par
bond price increases, interest rate decreases

56
Q

How do you calculate current yield?

A

Annual interest/current market price

57
Q

During periods of inflation, what do bond curves look like? What about periods of deflation?

A

INFLATION
HIGHER INTEREST RATES!
normal, upward sloping, shorter maturity has lower yield, high maturity has higher yield
DEFLATION
LOWER INTEREST RATES!
inverted, downward slope, short maturity has high yields

58
Q

When is an index mutual fund ideal?

A

broad exposure, they are no-load funds, so they do not have front or back-end sales charges, or commissions like an ETF

59
Q

What is a hedge fund?

A

Use leverage to increase returns
do NOT have 12b-1 fees or back-end sales charges
Structures like LP or DPPs
do not trade on exchange
ANNUAL FEES
management fee ~1-2%
performance fee ~15-20%

60
Q

What are 12b-1 fees?

A

annual marketing/distribution fee for mutual funds

61
Q

What is Regulation T?

A

payment date is S+2 or T+3, except for Treasuries, P=T+1=S

62
Q

What is a privacy notice?

A

states that nonpublic personal info may not be used if the client does not opt out of disclosing it. Firms provide it when relationship is established, then annually thereafter

63
Q

What is a market-out clause?

A

in an underwriting agreement, allows underwriter to withdraw if certain events occur that make sale difficult/impossible

64
Q

What securities are exempt?

A

US gov, Muni, non-profit, short-term corporate debt (commercial paper) with maturity<270 days
domestic banks and trust companies
small business investment companies

65
Q

Difference between Settlement Date and Reg T payment date?

A

Settlement date: date that two BDs exchange security and money
Reg T payment date: date customers must pay BD (whether in cash or margin account)

66
Q

What does using DCA investment strategy do?

A

using dollar-cost, avg price of securities purchased will be greater than the average cost of securities over long period of time

67
Q

What does ‘vested’ mean?

A

the time which an employee can receive at least some retirement benefits contributed by the employer, the employer is vested

68
Q

How is a VRDO redeemed?

A

variable-rate demand obligation
can be redeemed before maturity on any date the interest rate is reset (monthly, weekly, or daily) redeemed at par value plus accrued interest

69
Q

What is the difference between sell stop and sell limit orders?

A

sell stop: sells stock instantly since they are used to protect positions from losing value, if stock is trading at value or LOWER, it will sell immediately

sell limit: order would occur at or above specified price

70
Q

What action must be taken after receiving a written complaint?

A

complaint is reviewed by principal, kept in file with a memo describing action taken. must be kept for 4 years, submitted to SRO quarterly

71
Q

What is a call premium?

A

what the issuer pays above 100 to retire bonds before maturity

72
Q

What is the difference between a mutual fund and an ETF?

A

mutual funds are actively managed (higher fees), and are only traded through the mutual fund company.
ETFs are traded on an exchange and are priced continuously based on supply and deman, with a higher liquidity

SIE (5 decks)

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